Gold advanced for a third week as a weaker dollar and debt concerns boosted the metal’s appeal as an alternative investment. Silver gained to the highest level in 31 years.

Gold for immediate delivery rose 1.4 percent this week and was little changed at $1,506.85 an ounce at 6:48 p.m. in Paris after climbing to an all-time high of $1,512.47 earlier today. June-delivery futures touched a record $1,509.60 yesterday on the Comex in New York, the 10th all-time high this month. The exchange is closed today for the Good Friday holiday.

“The weak dollar is having the most influence on gold at the moment,” said Chae Un Soo, a Seoul-based trader at Korea Exchange Bank Futures Co. “The market is getting more jittery now that we have sovereign-debt concerns about the U.S. in addition to Europe and the Middle East problems, which increasingly boosts safe-haven demand for gold.”

The dollar slid to the lowest level since August 2008 against a basket of six major currencies this week on speculation that the U.S. Federal Reserve will be slow to raise borrowing costs. The Dollar Index is little changed today and is set for a 0.9 percent weekly drop. The Fed has kept the benchmark rate between zero percent and 0.25 percent since December 2008 and pledged to purchase $600 billion in Treasuries through June to stimulate the economy.

Standard & Poor’s this week cut its debt outlook for the U.S. to negative from stable. Violence in the Middle East, sovereign-debt turmoil in Europe and Japan’s nuclear crisis have helped propel bullion 31 percent higher in the past year.

“Overall trade for gold and other precious metals was extremely thin due to the market holiday in the U.S. and U.K.,” said Hiroyuki Kikukawa, general manager of research at IDO Securities Co. in Tokyo.

Silver for immediate delivery climbed 2.1 percent to $47.25 an ounce, the highest price since 1980. The metal has climbed 11 percent this week, a fifth weekly advance and the biggest weekly gain since Feb. 18.

Spot palladium fell 0.1 percent to $767.50 an ounce, while cash platinum was 0.3 percent higher at $1,822.50 an ounce.

How else can we interpret the extraordinary moves by the University of Texas’ endowment fund to not only buy nearly $1 billion of gold, equal to about 5 percent of its assets, but to insist on taking physical delivery of the precious metal.

Things really have come to an interesting juncture when the second-largest academic endowment in the U.S., managed and advised by sober, rational people, decides that what they need is insurance against getting, in essence, robbed, via inflation, by fiscal and monetary policy.

Little wonder that gold futures went above $1,500 per ounce for the first time on Wednesday, driven by a laundry list of concerns starting with a falling dollar and not ending with the growing chance of “debt restructuring” (well, default, if you insist) by Greece.

“The role gold plays in our portfolio is as a hedge against currencies. The concern is that we have excess monetary and fiscal stimulus,” Bruce Zimmerman, chief executive officer of The University of Texas Investment Management Company told CNBC television.

While Zimmerman said it was easier and more economical for the fund to physically accept the gold, which it is paying to store in a vault presumably deep below the sidewalks of New York, rather than the more usual route of buying a derivative contract, the move also must reflect concern about the risk of those contracts not being honored. To that extent the investment is not only protection against inflation and currency risk, but against market failure as well.

Zimmerman has described gold as an “anti-currency,” as, being in limited supply, its value can’t be degraded by central bank-engineered inflation and devaluation. You can’t turn on the printing presses and make more gold, a slender but apparently important virtue.

That’s a legitimate concern, though the kind of scenario that would only have been raised on the most feverish message boards until a couple of years ago. Since the second round of quantitative easing was signaled last August the dollar has fallen about 11 percent against a trade-weighted basket of currencies.

The dollar has fallen particularly hard in recent days, even against the beleaguered euro, after Standard & Poor’s put the U.S. on warning that it has a one-in-three chance of losing its AAA debt rating. Some of the same fears that drove S&P’s move are driving the gold market; the idea that the U.S. will not get its act together to agree budget reform and, in becoming a worse credit, sees the dollar weaken precipitously.

THE ANTI-INVESTMENT Rather than being an anti-currency, gold is really an anti-investment, not because it can’t pay off, but because it is the one asset that not only protects you against the bad actions of others but actually rewards you for them.

If central bankers and politicians bring on massive inflation, gold goes up. If the U.S. threatens to slouch or leap towards default, gold goes up.

The opposite of buying gold perhaps is to buy equities, because you are betting on creating products, jobs and wealth rather than just protecting yourself. On the other hand, a bar of gold has no executives that can loot the company or accountants that can aid in fraud. Really the world in which an investment in gold makes you rich is not a very appealing place.

In some ways you can look on capital flowing into gold as a kind of unexpected cost of current monetary policy, just as putting bars on your windows is a cost of living in a dangerous neighborhood. Both divert money away from more productive causes in service to security.

It is really hard to say which is more remarkable; that people are behaving in ways that might have been labeled as paranoid a few years ago or the rise of things that plausibly might make them worried.

The lack of safe alternatives to the dollar is also doubtless driving money to gold. While the euro has rallied against the dollar on expectations of further interest rate rises, its policies towards its ailing member states are in a shambles. There is a real risk that a restructuring by Greece and continued problems in Ireland and Portugal cause contagion to Spain, an economy big enough to call the whole project into question. Electoral gains by a nationalist party in Finland that rejects bailouts only adds to the potential difficulties.

China, though supposedly keen to promote the yuan as an alternative to the dollar, is still partly a closed economy for outside investors. Japan, recovering from disaster and facing huge demographic challenges, is also, though open and big, hardly appetizing.

Gold, then, is a profoundly pessimistic and depressing investment. In current circumstances it also, unfortunately, has a heck of an elevator pitch.

(At the time of publication James Saft did not own any direct investments in securities mentioned in this article. He may be an owner indirectly as an investor in a fund. Email: jamessaft@jamessaft.com)

KWN’s London source has updated King World News on the massive Asian buyers which have been accumulating gold and silver. The London source stated, “$3 to $4 dollar days in silver will become common, from now on $2 days will be considered slow. There will be a great deal of volatility going forward, but more often than not silver will close near the highs.” April 25, 2011 KWN Blog

“Right now the silver shorts are being flushed out in Asian trading on light volume and we have options expiration ahead of us. 38,000 silver contracts are in the money and the question is how many will ask for delivery? As I mentioned to you previously, the Asians have also been taking delivery of silver out of SLV and will continue to do so. You have to understand that these Asian buyers are planning to take delivery of all of the available phyiscal silver they can get their hands on and will continue doing so for the foreseeable future.” When asked at what price the Chinese will stop buying silver the London source replied, “The Chinese want out of dollars and they will continue aggressively purchasing both gold and silver in order to diversify. They don’t care whether silver is $50, $60 or $100, they will just continue accumulating. The Chinese may be patient buyers, accumulating on weakness, but you can bet that their relentless purchases of physical silver will eventually push the price well over $100 an ounce.” As Dan Norcini and I discussed this weekend on the KWN Weekly Metals Wrap, the Asians are steering the bus in the silver market as the paper shorts lost control some time ago. Eric King KingWorldNews.com To return to BLOG click here.

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